From The Wall Street Journal
Santiago Rivera earns around six figures hauling water in America’s hottest oil field. He was at a truck stop in Midland, Texas, last month when a man in a gray polo shirt walked up and offered him more.
“How much are you making an hour?” the man asked. He promised a 25% raise on the spot and handed Mr. Rivera a business card.
Nearly half of all rigs working in the U.S. are currently deployed in the Permian Basin. But a shortage of truckers to transport crude, as well as the sand and water used in fracking, is threatening to slow a drilling boom that has helped lift U.S. oil production this year to all-time highs.
Pipelines filled to the brim are forcing some producers to truck oil hundreds of miles to markets in Oklahoma and along the Gulf Coast, setting off a bidding war for qualified truckers in this corner of West Texas and New Mexico, where many drivers already make more than $100,000 a year.
“If you’re a driver, you can go anywhere here,” said Everardo Flores, who makes $800 to $1,100 daily hauling crude within the Permian for Calgary, Alberta-basedGibson Energy Inc. The 35-year-old independent contractor has been trying for months to recruit another driver for his truck, but most candidates ask for too much, including free housing.
It doesn’t help that the trucking industry nationwide is struggling to hire and retain drivers, with the overall freight market one of the strongest in years.
With U.S. unemployment at an 18-year low of 3.8%, carriers are having a hard time competing with jobs in construction or other energy-sector jobs that offer more nights at home or better pay. Truckers often spend weeks on the road, sleeping in their cabs and subsisting on truck-stop food.
Permian operators have responded with higher wages and larger signing and retention bonuses. “Now hiring” signs line roads throughout the region, advertising for drivers.
Badlands Tank Lines, an Omaha, Neb., company with more than a dozen trucks in the Permian, has increased driver pay twice in recent months, offering raises of about 10% each time, founder Roger Johnson said. The company’s average Permian crude driver now makes about $105,000 annually, Mr. Johnson said, nearly double the $57,000 a year the average long-haul trucker makes at for-hire carriers, according to the American Trucking Associations, an industry group.
Some energy-transportation companies are even bringing people on without a commercial driver’s license and then sending them to get certified, said John Rojas, director of transportation training services at Del Mar College, a community college in Corpus Christi, Texas, where enrollment in commercial-driving courses has soared since February.
Many drivers left the industry when crude prices plunged in 2014, a slump that also left companies with excess equipment, said Rob de Cardenas, a senior vice president for Houston-based Crestwood Equity Partners LP, which operates several shale-related businesses.
Now “everything is kicking back up,” Mr. de Cardenas said, adding that used crude trailers that sold for $25,000 to $35,000 apiece last year now fetch $45,000 to $50,000.
The shift has also given transportation companies more leverage with shale drillers. “The people who have the trucks are locking in deals for six months” or longer instead of month to month, Mr. de Cardenas said.
The competition for drivers in the Permian is so fierce—and the cost of doing business rising so quickly—that some trucking firms are reconsidering whether operating there is worth it.
“All the costs have started going back up, but the pricing is lagging,” said Harold Sumerford Jr., chief executive of J&M Tank Lines Inc., which hauls sand. The company’s management team meets monthly to discuss whether to divert trucks to less competitive oil fields elsewhere, he said.
There was plenty of pipeline capacity to move oil out of the Permian when prices were lower, but output has risen faster than companies have built new pipelines.
If forecasts hold, trucks would need to haul 300,000 to 400,000 barrels of crude out of the Permian daily by the middle of next year, before new pipelines open, according to Goldman Sachs. That would require another 3,000 to 4,000 trucks to begin traveling the dusty roads of West Texas and New Mexico, more than an 8% increase over current daily demand.
Matthew Portillo, a managing director at energy investment bank Tudor Pickering Holt, is skeptical that that many qualified drivers can be imported to the area, calling it “a big limiter.
Oil in Midland recently has sold for $20 a barrel less than in Houston, according to investment bank Credit Suisse . That reflects the additional costs some face moving crude to the Gulf Coast.
Even larger producers have begun reconsidering their Permian production plans. “The conversation in the company is, should we stop?” ConocoPhillips Chief Executive Ryan Lance said at a conference last week. “Why should we keep spending capital there and be subjected to $10, $15 [differentials] when we can reallocate that to something else?”
For now, it is a good time to be a trucker in the Permian like Mr. Rivera, 52 years old, who has been driving for more than a decade. A native of El Paso, he sleeps in his truck and heads home every other weekend. He considered the offer from the man in the gray polo, he said, but ultimately concluded the 25% raise sounded too good to be true. “I wasn’t convinced,” he said.
Meanwhile, Mr. Flores, the independent contractor, recently trained a driver who jumped ship as soon as he was up to speed.
“Somebody comes in and gives them a better price,” he said.
